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Scaling in currency exchange: A Conditionally Exponential Decay approach

Author

Listed:
  • Szymon Mercik
  • Rafal Weron

Abstract

We use the Conditionally Exponential Decay (CED) model to explain the scaling behavior in currency exchange (FX) rates. This approach enables us not only to show that FX returns satisfy scaling with an exponent qualitatively different from that of a random walk, but also to identify the distributions of these returns corresponding to the empirical scaling laws. The study is conducted via three different estimation methods and using intra-daily FX data which offers the great advantage of large samples and high significance.

Suggested Citation

  • Szymon Mercik & Rafal Weron, 1998. "Scaling in currency exchange: A Conditionally Exponential Decay approach," HSC Research Reports HSC/98/02, Hugo Steinhaus Center, Wroclaw University of Technology.
  • Handle: RePEc:wuu:wpaper:hsc9802
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    File URL: http://www.im.pwr.wroc.pl/~hugo/RePEc/wuu/wpaper/HSC_98_02.pdf
    File Function: Final version, 1998
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    References listed on IDEAS

    as
    1. Aleksander Janicki & Aleksander Weron, 1994. "Simulation and Chaotic Behavior of Alpha-stable Stochastic Processes," HSC Books, Hugo Steinhaus Center, Wroclaw University of Technology, number hsbook9401.
    2. John List & Matti Liski, 2005. "Introduction," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 31(2), pages 121-121, June.
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    Cited by:

    1. Mercik, Szymon & Weron, Rafal, 2002. "Origins of scaling in FX markets," MPRA Paper 2294, University Library of Munich, Germany.

    More about this item

    Keywords

    Econophysics; Scaling law; CED model; High frequency data; Currency exchange;

    JEL classification:

    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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